Aer Lingus: Flybe deal with Ryanair is 'desperate’ move

Aer Lingus has accused Flybe of acting out of “desperation” after the UK
regional airline admitted it would receive €150m (£129m) to operate 43 of
the Irish carrier’s short-haul routes if it is taken over by Ryanair.

Flybe says its proposed Irish business would bring a "different product mix" to the market if Ryanair's proposed takeover of Aer Lingus (above) goes ahead.Photo: PA

Christoph Mueller, chief executive of Aer Lingus, hit out at Flybe for striking a deal with Ryanair that could lead to the European Commission approving the low-cost carrier’s proposed €694m takeover of its Irish rival.

The EC had expressed concerns that Ryanair’s proposed €1.30-a-share offer for Aer Lingus would create a monopoly on 46 routes out of Ireland.

Ryanair has sought to alleviate those fears by showing that Flybe is willing to set up in competition on most of those routes. It has also held talks with British Airways over operating Aer Lingus routes between Ireland and Gatwick.

Flybe on Wednesday published its plans for a new Irish business, funded by €100m of cash from Ryanair, if the EC decides next month that it will allow the takeover bid to proceed.

The Exeter-based regional carrier, which is heading towards losses of more than £14m this year, said it would pay €1m for a new company, Flybe Ireland, which would operate half of Aer Lingus’s short-haul routes in Europe and would receive up to 12 Airbus A320 aircraft.

In addition to the €100m of cash, Ryanair has committed to ensuring that Flybe Ireland would receive about €50m in forward sales and would generate €20m of pre-tax profit in the first year.

Flybe has also secured use of the Aer Lingus brand for up to three years.

Mr Mueller said the unusual arrangement appeared “very desperate” on the part of loss-making Flybe, which has issued five profit warnings since its flotation in 2010. “If your back is so much against the wall you grab every straw. I see Flybe as the tool in the hands of Ryanair,” the airline boss said.

“They [Ryanair] have found after talking to more than 20 carriers in the last nine months, the weakest of all [which is] in such a desperate need of cash. I believe for Flybe, without exaggerating, it’s a question of survival.”

Critics of the deal claimed Flybe could operate successfully in Ireland for the first few years, buoyed by Ryanair’s cash, but said it would struggle to provide effective competition in the long term to the self-styled “ultra low-cost” carrier. Ryanair offers market-beating fares and has the lowest cost base of any airline in the world.

Mr Mueller likened the deal to drug-dealing. “The first shot is for free and then the dependency is there,” the Aer Lingus boss said, claiming the competition that would be created through an arrangement between Flybe and Ryanair would be “artificial”.

Jim French, chairman and chief executive of Flybe, said his carrier would be able to bring a “different product mix” to the Irish aviation market.

He acknowledged that Ryanair would be a tough competitor but insisted that Flybe would be able to compete by offering more frequent flights on key business routes. The regional carrier has ordered new Embraer aircraft – some of which it could deploy to Ireland.

“Let’s be very clear: Ryanair is the lowest cost airline in the world but there are more ways to compete than purely on ticket price,” Mr French said, adding that it was not so long ago that Aer Lingus was itself loss-making.

“We have to ensure our ticket price and seat costs are very close to Ryanair so that we can charge a premium, but not a premium that will be unattractive to passengers.

“Frequency is our main weapon in our armoury against easyJet, Ryanair and all of the other low-cost airlines we have been competing with for some time.”

The EC has until March 6 to rule on Ryanair’s proposed takeover of Aer Lingus but senior aviation sources believe a decision will be published in the next 10 days.

Ryanair said it wanted to “respect” the EC’s process and would not comment.